4 Facts About Kidnap and Ransom

Fueled by continued social and economic unrest, kidnappings are one of the fastest-growing criminal industries

Since the dramatic Jan. 25 rescue of an American teacher and a Danish aid worker kidnapped by Somalis, the issue of kidnap and ransom (K&R) insurance has been at the forefront of media focus. A glance through recent headlines reinforces the maze of possible, insurable K&R exposures. Splashed across front pages are alarming, real-life scenarios in which those involved would be well advised to have had K&R coverage—and those are just the situations that are made public. Regardless of this recent increased visibility in the media, the risk of kidnap for ransom has been, and continues to be, a real and viable threat.

According to international consulting firm Control Risks Group, kidnapping is one of the fastest-growing and lucrative criminal industries; it is estimated that kidnappers globally accrue more than $500 million each year—and this figure is rising. Fueling this corrupt industry is the convergence of continued social unrest and a weak global economy. Motivated by profit, kidnappers are adapting their tactics in order to capitalize on this market opportunity. As a result, kidnapping is more prevalent than ever: Although data varies, estimates indicate there may have been up to 25,000 kidnappings worldwide in 2011. Even more alarming, these figures of reported kidnappings account for a fraction of the total because less than 20 percent of kidnapping instances are recorded.

Experts agree that kidnap for ransom is an undeniable and increasing global danger. As Control Risks Group states: "Kidnap poses a severe and persistent threat to foreign personnel" and the "security environment presents persistent and serious challenges for international business." As the complexity and preponderance of this risk increases, so does the responsibility for agents and brokers to provide innovative solutions for K&R insurance.

Related: Read the article "Tailor an Executive Liability Program to Fit Your Client" by Monica Minkel.

Effective K&R risk management consists of four trends:

Agents and brokers must be proactiveThe landscape of K&R is complex and constantly evolving. As a result, independent agents and brokers must be vigilant about the trends and risks associated with K&R. This constant awareness will enable agents and brokers to anticipate likely exposures and deliver insurance solutions to address these specific risks. Those of us who specialize in risk management know it is more crucial than ever to provide solutions to these increasing threats. We should focus on reducing the opportunities for kidnapping by enabling and educating those who are at risk. This is an area of policy where there is much potential for success—and where the insurance sector can play a key role a trusted advisor.

K&R exposures are gaining in broader industry sectorsKidnapping has evolved into an evident danger with the potential to negatively impact any business or entity that deals with counterparts or subsidiaries in foreign countries. Industries traditionally affected by K&R include financial, oil, gas, mining, telecommunications and pharmaceuticals. Today, K&R exposures exist within a much broader range of sectors, such as religious organizations, schools and universities, medical facilities and non-governmental organizations (NGOs). Agents and brokers must be advised that regardless of a client’s industry, the threat of K&R still remains.

Kidnap hotspots change from year to yearStatistics indicate that anywhere there is political or social unrest, the risk of kidnap is present. However, it is especially important to be aware of those current regions, or hotspots, with the highest frequency of reported K&R incidents. Agents and brokers should encourage clients to be cognizant of the heightened K&R risk in these countries, and to take special precaution.

According to Control Risks’ 2012 RiskMap, these countries rank highest among the world’s kidnapping hotspots:

Business objectives are crucial to risk managementUnderstandably, many individuals lack an appreciation of potential dangers and focus exclusively on the goal of their travel. Agents and brokers can proactively minimize their clients’ exposures to K&R risks by maintaining an oversight regarding a client’s objectives, habits and patterns. This oversight enables us as agents and brokers to raise our client’s awareness of potential risks, increase understanding about how to manage those risks and encourage effective security strategies.

While the scenario of kidnap for ransom is unpleasant to consider, the realities of this danger are impossible to ignore. K&R exposures are emerging in new industries and arising in more geographical regions than ever before. Now is a critical time for agents and brokers to become trusted advisors within their clients’ portfolio of risk management. To accomplish this, agents and brokers must be more proactive in managing K&R risk by staying informed of current trends, potential threats, and common myths. This will provide both a peace of mind and a financial safeguard to valued clients.